Kachikwu: $200m Local Content Fund Will Reduce Production Cost

The Minister of State for Petroleum Resources, Dr. Ibe Kachikwu has stated that an effective application of the $200 million Nigerian Content Development Fund (NCDF) will contribute positively to Nigeria’s plan to reduce the cost of producing oil from $32 per barrel to $15 per barrel.

Kachikwu has also explained that at a single-digit lending interest, the fund, which is domiciled with the Bank of Industry (BoI), would address the funding challenges which he said has hampered the growth and success of indigenous manufacturers, service providers and other key players in the country’s oil sector.

Speaking at the signing of a Memorandum of Understanding (MoU) between the Nigerian Content Development Management Board (NCDMB) and BoI on the $200 million NCDF, Kachikwu noted that over the years, companies involved in the country’s oil sector have found it quite difficult to access cheap funds to execute their projects.
He added that the exorbitant lending costs from commercial banks in the country have contributed to high oil production costs.

“Today’s event is significant for the oil and gas industry and the Nigerian economy because the NCI Fund being launched today has been long expected and will go a long way in addressing the funding challenges which hamper the growth and success of indigenous manufacturers, service providers and other key players in the sector. Over the years, Nigerian companies have found it difficult competing with their counterparts from jurisdictions where funding is accessible for five per cent or less as compared to our market where bank lending rates hover around 20 per cent,” Kachikwu explained.

“Some Nigerian banks are still unable to provide long-term financing required by the local supply chain to build needed capacity; the banks also lack sufficient knowledge of the oil and gas sector. The pedigree and operating model of the Bank of Industry (BoI) is expected to close this gap. It is a known fact that the exorbitant cost of funds in our market is partly responsible for the high cost of service delivery by Nigerian Oil and Gas Service Providers (NOSPs) and this feeds into the unacceptable high cost of our crude oil production,” he said.

“At the SPE Conference in Lagos weeks ago, I directed all players in the sector to work assiduously to cut the cost of producing a barrel of oil, which currently stands at $32/barrel. I am optimistic that the NCDF, which will be accessed at a single digit interest rate, with a tenor of five years, will help in this regard,” he added.

Kachikwu, also called for proactive and strict management of the fund to avert potential abuses by its beneficiaries.
“The governing council of the board, of which I am the chairman, approved this transaction at our last meeting with an initial outlay of $200 million. This is to ensure that a wide spectrum of NOSPs access the fund. We are also desirous of catalysing the growth and development of Nigerian Content in all its facets, including manufacturing, asset acquisition, contract financing and contract financing for community contractors,” the minister said.

“The board must also ensure that it deploys effective communication strategies and educates Nigerians sufficiently on the terms of the fund and conditions that must be met before companies can apply and secure loans under the fund. I wish to advise companies that will successfully access the fund to be diligent in utilisation and faithful in repayment. There is a tendency for companies to assume that it is free money and decide not to repay. To forestall this, NCDMB and BOI must adhere strictly to the detailed operating model, to ensure that only serious companies with bankable business plans and prospects of repayments access the funds,” Kachikwu stressed.

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